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ASTI > SEC Filings for ASTI > Form 10-Q on 9-May-2013All Recent SEC Filings

Show all filings for ASCENT SOLAR TECHNOLOGIES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ASCENT SOLAR TECHNOLOGIES, INC.


9-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes to those financial statements appearing elsewhere in this Form 10-Q. This discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Overview
We are a development stage company formed to commercialize flexible photovoltaic modules using our proprietary technology. Since our formation in October 2005, the majority of our cash outlays have gone toward the investment in capital equipment necessary to develop our manufacturing capabilities for producing the commercial products we envision and for research and development. For the three months ended March 31, 2013, we generated $235,000 of revenue. Our product revenue was $176,000 and our revenue from government research and development contracts was $59,000. We do not consider this level of sales sufficient for exiting development stage.
Product revenue for the quarter reflects the shift in our sales strategy to focus on 1) geographic expansion 2) specific customer and market segments and 3) our dual offering of EnerPlex™ consumer products as well as off-grid applications employing our technology in a variety of end-use applications. Our geographic expansion includes new distribution and retail relationships in the Americas, Europe and Asia-Pacific Regions. Our results also reflect EnerPlex traction in segments including mobile accessories, consumer electronics and outdoor specialty gear. In our off-grid segment our co-development partners are ordering products for diverse applications in vehicle battery charging, military applications, specialty outdoor gear, transportation and aerospace applications. Our product roadmap includes the release of several complimentary products presented in a wide range of wattages which we expect will accelerate our sales traction in the markets noted above.
Our proprietary manufacturing process deposits multiple layers of materials, including a thin film of highly efficient Copper-Indium-Gallium-diSelenide ("CIGS") semiconductor material, on a flexible, lightweight, plastic substrate using a roll-to-roll manufacturing process and then laser patterns the layers to create interconnected PV cells, or PV modules, in a process known as monolithic integration. We believe that our technology and manufacturing process, which results in a lighter, flexible module package, provides us with a unique market opportunity relative to both the crystalline silicon ("c-Si") based PV manufacturers that currently lead the PV market, as well as other thin film PV manufacturers that use substrate materials such as glass, stainless steel or other metals that can be heavier and more rigid than plastics. Due to the high durability of the monolithic integration employed by our technology, the capability to customize modules into different form factors and the industry leading light weight and flexibility provided by our modules, we believe there are numerous potential applications for our products.
We continue to accelerate our transition to a business model focusing on developing PV integrated consumer electronics. In June 2012, we launched our new line of consumer products under the EnerPlex brand, and introduced our first product, the Surfr™, a solar assisted case and charger for the Apple® iPhone® 4/4S smart phone featuring our ultra-light CIGS thin film


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technology. The charger incorporates our ultra-light and thin PV module into a sleek, protective iPhone 4/4S case, along with a thin battery. The charger adds minimal weight and size to an iPhone smart phone, yet provides supplemental charging when needed. In August we announced the launch of the second version of Surfr, a solar assisted charger for the Samsung® Galaxy S® III, which provides 85% additional battery life.
In December 2012, we launched the EnerPlex Kickr™ and EnerPlex Jumpr™ product series. The EnerPlex Kickr IV is an extremely portable, compact and durable solar charging device, approximately seven inches by seven inches when folded, and weighing only 316 grams, or less than half a pound. The Kickr IV provides 4.5 watt regulated power that can help charge phones, tablets, digital cameras, and other devices. The Kickr IV is ideal for outdoor activities such as camping, hiking and mountain climbing and daily city use. Complementing the Kickr IV is the Jumpr 4400 and the Jumpr 4800, rechargeable, portable battery packs providing from three to five complete charge cycles for a smart phone. We continue to design and manufacture PV integrated consumer electronics, as well as portable power applications for commercial and military users, and we have adjusted our equipment utilization to meet our near term sales forecast. Products in these consumer oriented markets are priced based on the overall product value proposition as compared with directly competitive products or substitute products rather than on a cost per watt basis, typically used in commodity solar markets.
Our consumer products are available to customers through third party distributors and retailers and through our website at www.EnerPlex.biz, our retail website. In 2013, we plan to continue our expansion of distribution channels in the US and worldwide.
Commercialization and Manufacturing Strategy We manufacture our products by affixing a thin CIGS layer to a flexible, plastic substrate using a large format, roll-to-roll process that permits us to fabricate our flexible PV modules in an integrated sequential operation. We use proprietary monolithic integration techniques that enable us to form complete PV modules with less or no costly back end assembly of inter cell connections. Traditional PV manufacturers assemble PV modules by bonding or soldering discrete PV cells together. This manufacturing step typically increases manufacturing costs and at times proves detrimental to the overall yield and reliability of the finished product. By reducing or eliminating this added step using our proprietary monolithic integration techniques, we believe that we can achieve cost savings in, and increase the reliability of, our PV modules. All tooling necessary for us to meet our near term production requirements is installed in our Thornton, Colorado plant. In 2012 we accelerated the change in strategy initiated in March 2011 when we revised our strategy to focus on applications for emerging and specialty markets, including off grid, military and defense and consumer oriented products.
On February 1, 2012, we announced the appointment of Victor Lee as President and Chief Executive Officer. Mr. Lee has served on our Board since November 2011. Mr. Lee is the managing director of Tertius Financial Group Pte Ltd, the joint venture partner with Radiant Group in TFG Radiant.
The addition of TFG Radiant as a major shareholder in August 2011 has significantly improved our capabilities on a number of fronts. TFG Radiant's domicile in China provides us access to high quality, low cost contract manufacturing in Asia through expansion of TFG Radiant existing relationships developed through many years of successful operation in China. Integrating these suppliers into our supply chain enables us to bring our products to market faster. TFG Radiant also provides a global product perspective that significantly improves the product design activities of our Thornton, Colorado designers as they collaborate with designers in Asia. We continue to integrate and improve the design-to-manufacture process where we manufacture modules in our US plant, ship them to Asia for completion into finished goods at low cost and then ship products to all markets we will serve. See Related Pparty Activity below.
We plan to continue the development of our current PV technology to increase module efficiency, improve our manufacturing tooling and process capabilities and reduce manufacturing costs. We also plan to continue to take advantage of research and development contracts to fund a portion of this development. Related Party Activity
TFG Radiant Investment Group Ltd. and its affiliates ("TFG Radiant") owns approximately 31% of our outstanding common stock as of March 31, 2013. In February 2012, we announced the appointment of Victor Lee as President and Chief Executive Officer. Mr. Lee had served on our Board of Directors since November 2011 and is currently the managing director of Tertius Financial Group Pte Ltd, the joint venture partner with Radiant Group in TFG Radiant. In April 2012, we appointed the Chairman of TFG Radiant, Mr. Winston Xu (aka Xu Biao), as a member of our Board of Directors.
In June 2012, we entered into a supply agreement and a contract manufacturing agreement with TFG Radiant. Under the terms of the contract manufacturing agreement, TFG Radiant will oversee certain aspects of the contract manufacturing process


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related to our EnerPlex™ line of consumer products. We will compensate TFG Radiant for acting as general contractor in the contract manufacturing process. Under the supply agreement TFG Radiant intends to distribute our consumer products in Asia. In December 2012, we entered into a consulting agreement with TFG Radiant for product design, product development and manufacturing coordinating activities provided by TFG Radiant to us in connection with our new line of consumer electronic products. The services agreement has a one year term initially, and the services agreement may be terminated by either party upon 10 days prior written notice.
During the three months ended March 31, 2013, we made disbursements to TFG Radiant in the amount of $517,000, consisting of $200,000 for consulting fees and $317,000 for finished goods received and deposits for work-in process. In the third quarter of 2012, we recognized revenue in the amount of $405,000 for products sold to TFG Radiant under the supply agreement. As of March 31, 2013 and December 31, 2012, we held $508,000 and $596,000, respectively, in receivables due from and deposits paid to TFG Radiant. Significant Trends, Uncertainties and Challenges We believe that the significant trends, uncertainties and challenges that directly or indirectly affect our financial performance and results of operations include whether:
• we can generate customer acceptance of and demand for our products;

• we successfully ramp up commercial production on the equipment installed;

• our products are successfully and timely certified for use in our target markets;

• we successfully operate production tools to achieve the efficiencies, throughput and yield necessary to reach our cost targets;

• the products we design are saleable at a price sufficient to generate profits;

• our strategic alliance with TFG Radiant results in the design, manufacture and sale of sufficient products to achieve profitability;

• we raise sufficient capital to enable us to reach a level of sales sufficient to achieve profitability, on terms favorable to us;

• we are able to be successful in designing, manufacturing, marketing, distributing and selling our newly introduced line of consumer oriented products;

• we effectively manage the planned ramp up of our operations;

• we are able to maintain the listing of our common stock on the NASDAQ Global Market or Capital Market;

• we are able to achieve projected operational performance and cost metrics;

• we successfully develop and maintain strategic relationships with key partners, including OEMs, system integrators and distributors, who deal directly with end users in our target markets;

• we are able to enter into commercially viable licensing, joint venture, or other commercial arrangements; and

• raw materials are available to us on acceptable terms and in sufficient quantities.

Critical Accounting Policies and Estimates Critical accounting policies used in reporting our financial results are reviewed by management on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Processes used to develop these estimates are evaluated on an ongoing basis. Estimates are based on historical experience and various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities. Actual results may differ as outcomes from assumptions may change.
Our significant accounting policies were described in Note 3 to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no changes to these policies that are of potential significance to us during the three months ended March 31, 2013. Recent Accounting Pronouncements


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See Note 3, "Summary of Significant Accounting Policies," in the Notes to Condensed Financial Statements. There are no new accounting pronouncements that are of significance or potential significance to us.

Results of Operations
Comparison of the Three Ended March 31, 2013 and 2012 Our activities to date have substantially consisted of raising capital, business and product development, research and development and the development of our production lines.
Revenues. Our revenues were $235,000 for the three months ended March 31, 2013 compared to $442,000 for the three months ended March 31, 2012, a decrease of $207,000. Revenues for the three months ended March 31, 2013 include $176,000 of product sales compared to $10,000 for the three months ended March 31, 2012, an increase of $165,000. Revenues earned on our government research and development contracts decreased by $372,000 during the three months ended March 31, 2013, due to the winding down of several government contracts.
Research and development. Research and development costs were $5,320,000 for the three months ended March 31, 2013 compared to $4,390,000 for the three months ended March 31, 2012, an increase of $930,000. Research and development costs include the costs incurred for production activities in our manufacturing facility and facility and equipment infrastructure costs. Research and development costs also include costs related to our governmental contracts. Costs related to production activities increased by $1,232,000. The production cost increase was comprised of consulting and contract service costs of $599,000, materials and equipment related costs of $347,000, personnel related costs of $333,000 and depreciation and amortization of $82,000, offset by decreases in facility related costs of $113,000 and stock option expense of $24,000. Governmental research and development expenditures decreased by $302,000 in the three months ended March 31, 2013. This decrease is the result of reductions in consulting and contract service costs of $228,000, personnel related costs of $41,000, materials and equipment related costs of $15,000 and stock option expense of $12,000.
Selling, general and administrative. Selling, general and administrative expenses were $1,242,000 for the three months ended March 31, 2013 compared to $1,494,000 for the three months ended March 31, 2012, a decrease of $252,000. This decrease is comprised of personnel related costs of $155,000, stock option expense of $140,000, facility and IT related costs of $70,000 and public company related costs of $57,000, offset by an increase in consulting and contract services of 171,000.
Other Income / (Expense), net. Other Income / (Expense) was $106,000 net expense for the three months ended March 31, 2013 compared to $67,000 net expense for the three months ended March 31, 2012, an increase of $39,000, primarily the result of an increase in interest expense.
Net Loss. Our Net Loss was $6,434,000 for the three months ended March 31, 2013 compared to a Net Loss of $5,510,000 for the three months ended March 31, 2012, an increase of $924,000.

The increase in Net Loss can be summarized in variances in significant account activity as follows:


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                                                                       Decrease (increase)
                                                                           to Net Loss
                                                                          For the Three
                                                                          Months  Ended
                                                                    March 31, 2013 Compared to
                                                                      the Three Months Ended
                                                                          March 31, 2012
Revenues
Products                                                           $              165,000
Government Contracts                                                             (372,000 )
Research and development costs
Manufacturing research and development                                         (1,257,000 )
Government research and development                                               291,000
Non-cash stock based compensation                                                  36,000
Selling, general and administrative expenses
Corporate selling, general and administrative                                     112,000
Non-cash stock based compensation                                                 140,000
Other Income / (Expense), net                                                     (39,000 )
Increase to Net Loss                                               $             (924,000 )

Liquidity and Capital Resources
As of March 31, 2013, we had approximately $6.9 million in cash and cash equivalents and working capital of $7.8 million. We are in the development stage and are currently incurring significant losses from operations as we work toward further commercialization.
We have commenced production at our manufacturing facility. We do not expect that sales revenue and cash flows will be sufficient to support operations and cash requirements until we have fully implemented our new consumer products strategy. Changes in the level of expected operating losses, the timing of planned capital expenditures or other factors may negatively impact cash flows and reduce current cash and investments faster than anticipated. During the first quarter of 2013 we used $5.1 million in cash for operations. Absent any adjustments to expenses or significant additional financing, and without considering capital expenditures or significant increases in product sales at a positive margin, our cash could be depleted during the third quarter 2013. In 2013 we expect to incur a base level of maintenance capital expenditures and relatively minor improvements to the existing asset base. Our primary significant long term obligation consists of a note payable of $6.6 million to a financial institution secured by a mortgage on our headquarters and manufacturing building in Thornton, Colorado. Total payments of $0.5 million, including principal and interest, will come due in 2013. Additional projected product revenues are not anticipated to result in a positive cash flow position for the year 2013 overall. As such, cash liquidity sufficient for the year ending December 31, 2013 will require additional financing, or a significant decrease in the operating expenditures, or some combination thereof. We continue to accelerate sales and marketing efforts related to our consumer products strategy through increased hiring. We have begun activities related to securing additional financing through strategic or financial investors, but there is no assurance that we will be able to raise additional capital on acceptable terms or at all. If our revenues do not increase rapidly, and/or additional financing is not obtained, we will be required to significantly curtail operations to reduce costs and/or sell assets. Such actions would likely have an adverse impact on our future operations.
For the three months ended March 31, 2013, our cash used in operations was $5.1 million compared to $4.0 million for the three months ended March 31, 2012, an increase of $1.1 million. The net loss in the first quarter of 2013, net of non-cash items depreciation and amortization and stock based compensation, was $4.7 million, a slight increase as compared to the figure of $3.7 million in 2012. Relatively minor differences in balance sheet accounts in 2013 and 2012 account for the remaining increase in cash used of $0.1 million. In the first quarter of 2013, expenditures for equipment purchases of $0.4 million combined with negative operating cash flows of $5.1 million were funded through the use of cash and cash equivalents held at December 31, 2012.
On April 11, 2012, we received notice from The NASDAQ Stock Market ("Nasdaq") stating that because we had not regained compliance with the $1.00 minimum bid price requirement for continued listing, our common stock (listed on The Nasdaq Global Market) would be subject to delisting. On August 17, 2012, we received notification from The Nasdaq Listing Qualifications department that we had regained compliance with the minimum bid price requirement, and that our noncompliance had been rectified. On December 5, 2012, we received notice from Nasdaq stating that we had again fallen out of compliance with the $1.00 minimum bid price requirement for continued listing. This notice has no immediate effect on the listing of our common stock on the Nasdaq Global Market. We have been provided an initial compliance period of 180 calendar days, or until June 3, 2013, for our closing bid price to meet or exceed $1.00 per share for a minimum of 10 consecutive


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business days. We recently filed our Proxy Statement for our 2013 Annual Meeting, which included a proposal that would, if approved by the shareholders, authorize our Board to effect a reverse stock split of our issued and outstanding common stock. The Board's implementation of a reverse stock could result in compliance with the $1.00 minimum bid requirement, but may have other negative implications. There can be no assurance that our plans to exercise diligent efforts to maintain the listing of its common stock on the Nasdaq Global Market will be successful. If not successful, there may be a negative impact on our ability to raise capital through the equity markets. Contractual Obligations
The following table presents our contractual obligations as of March 31, 2013. Our long-term debt obligation is related to our building loan reflecting both principal and interest. Our purchase obligations include orders for equipment, inventory and operating expenses.

                                                            Payments Due by Year (in thousands)
                                               Less Than 1                                       More Than 5
Contractual Obligations          Total            Year           1-3 Years       3-5 Years          Years
Long-term debt obligations    $   10,289     $         694     $     2,081     $     2,081     $       5,433
Operating lease obligations           52                52               -               -                 -
Purchase obligations               1,232             1,232               -               -                 -
Total                         $   11,573     $       1,978     $     2,081     $     2,081     $       5,433

Off Balance Sheet Transactions
As of March 31, 2013, we did not have any off balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

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